*128 Decision will be entered under Rule 50.
1. Where petitioner's husband transferred assets to her without consideration as a part of a preconceived plan to hinder, delay, and defeat the collection of his 1949 income taxes, petitioner is liable as a transferee. The amount of transferee liability is reduced, however, to the extent of funds retransferred by petitioner to her husband. Fada Gobins, 18 T.C. 1159">18 T.C. 1159.
2. Transferee liability is not diminished by reason of petitioner's expending a part of the transferred funds for the transferor's living expenses. Fada Gobins, supra.
*1036 Respondent determined that petitioner is liable to the extent of $ 28,099.80 as transferee of certain assets of her husband, Charles P. Noell. The parties have stipulated that the outstanding income tax liability of Charles P. Noell for 1949 is $ 29,886.97, exclusive of interest, the only question for decision being whether petitioner is subject to transferee liability.
The case was submitted on a stipulation of facts, *129 oral testimony, and exhibits.
FINDINGS OF FACT.
Petitioner resides at Pacific, Missouri, with her husband, Charles P. Noell, hereinafter referred to as Noell, an attorney at law who specialized for many years in personal injury suits against railroads. Petitioner, a housewife, has never been gainfully employed. She filed no Federal income tax returns prior to 1950.
On January 16, 1950, Noell filed with the collector of internal revenue for the first district of Missouri a Declaration of Estimated Tax reporting an estimated income tax liability for 1949 of $ 2,000, which sum he paid at that time. Before filing a final return for 1949, Noell had an accountant prepare for him both separate and joint returns. The accountant informed Noell that the liability under the separate return would be approximately $ 6,000 greater than if he filed a joint return with his wife. Noell filed the separate return prepared by the accountant on March 15, 1950, disclosing liability in the amount of $ 33,627.06. No remittance accompanied the return for 1949 and there have been no voluntary payments on the admitted liability.
The collector, on April 1, 1950, made an official demand on Noell for immediate*130 payment of the amount due for 1949. In an official notice delivered May 3, 1950, the collector again demanded that Noell pay the amount he owed for 1949.
On June 12, 1950, the collector notified Gilbert Weiss, Noell's attorney, that he was considering the feasibility of filing a tax lien against Noell unless payment for 1949 was made immediately. Weiss informed the collector that Noell intended to pay the assessment for 1949 just as soon as certain deficiencies for 1946 through 1948 were finally determined and that he expected such final determinations soon. Noell consented on June 19, 1950, to assessment of the deficiencies for 1946 through 1948 in the amount of $ 29,308.41 and paid the deficiencies, partly out of funds borrowed from the First National Bank in St. Louis.
On June 24, 1950, the collector, having received no remittance on Noell's unpaid liability for 1949, filed notices of a tax lien upon all property belonging to Noell with the recording offices in Clayton and Union, Missouri. A similar lien was filed in St. Louis on June 30, 1950. The collector notified Noell on May 24, 1950, that warrants *1037 for distraint had been given the collection agents. A group*131 chief and a staff of up to 10 collection agents were assigned to the special task of searching for and seizing any assets of Noell. Despite exhaustive and continuous efforts, the agents at the time of the trial had collected from Noell on the remaining unpaid tax only $ 1,740.09, which included certain legal fees and the proceeds from the sale of a farm tractor. The tractor was seized on April 18, 1952, but the sale thereof was delayed until May 14, 1952, because of a promise by Noell's attorney that payment of the entire liability for 1949 was then being arranged.
Noell's outstanding tax liability for 1949 at the date of trial was $ 29,886.97, exclusive of interest.
Noell's attorney, in response to an inquiry from the collector regarding the reason for Noell's failure to pay, stated, on November 13, 1950, that Noell was trying to find money with which to make an offer in compromise of the 1949 liability. On January 2, 1951, Noell's attorney informed the collector that Noell was still trying to get enough money to make an offer of compromise of the 1949 liability. After January 2, 1951, the collection agents contacted the attorney at intervals of about 2 weeks, either personally*132 or by telephone, regarding the liability.
Noell appeared on March 10, 1952, before the collector for interrogation relative to the nonpayment of the 1949 liability. At that conference, Noell informed the collector that he did not intend to pay his outstanding liability for 1949. He refused to tell the collector whether he had any cases pending in which he, although not counsel of record, would be entitled to a fee. Noell further declared that he did not intend to inform the collector how much money he had or where it was kept although he indicated that it was very little.
The collection agents contacted more than 50 banks and other financial institutions throughout Missouri in their search for assets belonging to Noell. In entering a bank on any official business, the collection agents also made inquiry as to whether Noell had any funds there. Numerous levies have been filed on various banks, attorneys, insurance companies, relatives, and other persons suspected of holding funds that belonged to or were owed to Noell.
Following the conference of March 10, 1952, the collection agents learned, upon checking the public records in the recorder's office, that a 125-acre farm had been*133 deeded by Noell on October 1, 1942, to Louis A. and Betty Lou McMahon, his son-in-law and daughter. The transfer by Noell to the McMahons was recorded on October 10, 1942. Record title to the 125-acre farm, which is popularly known as Fox Hill Farm, remained in the McMahons until September 21, 1953. There was no monetary consideration for the transfer from Noell to *1038 the McMahons which followed immediately after the release by the Government of its tax liens against Noell for his 1935 through 1937 tax liabilities.
Fox Hill Farm is rough, rocky land, unsuitable for cultivation, and there are no crops, machinery, or livestock on the farm. There is, however, a log house with a well landscaped yard and private roadway which, together with other improvements, has a present-day replacement cost of $ 91,400. The fair market value of the farm, including improvements, is $ 60,000.
On October 9, 1942, which was the day immediately preceding that on which the McMahons recorded their deed from Noell and the petitioner, the McMahons executed two warranty deeds wherein title to Fox Hill Farm was conveyed to Noell and petitioner "as husband and wife." There was no monetary consideration*134 for the transfer and the deeds were not recorded until the fall of 1953.
Noell has not responded to subsequent requests by the collector for current financial statements.
Noell maintained six life insurance policies on his own life, the total face value being $ 90,000. In each of those policies, he retained the right to change the beneficiaries. The cash surrender values of the policies on the listed dates were as follows:
| Policy No. | Face value | Apr. 22, | Apr. 22, | Apr. 22, | Apr. 22, |
| 1950 | 1951 | 1952 | 1953 | ||
| N1242550 | 1 $ 30,000 | $ 5,580 | $ 6,360 | $ 7,140 | $ 7,920 |
| N1242551 | 1 40,000 | 7,440 | 8,480 | 9,520 | 10,560 |
| Policy No. | Face value | Dec. 28, | Dec. 28, | Dec. 28, | Dec. 28 |
| 1950 | 1951 | 1952 | 1953 | ||
| 6475470 | $ 5,000 | $ 2,245 | $ 2,340 | $ 2,430 | $ 2,520 |
| 6475471 | 5,000 | 2,245 | 2,340 | 2,430 | 2,520 |
| 6475472 | 5,000 | 2,245 | 2,340 | 2,430 | 2,520 |
| 6475473 | 5,000 | 2,245 | 2,340 | 2,430 | 2,520 |
The cash surrender values of all of the policies were assigned by Noell on April 12, 1950, to the First National Bank in St. Louis as collateral for a loan obtained from the bank on April 27, 1950. The original*135 loan in the amount of $ 19,900 was increased on August 30, 1951, to $ 21,100 and on February 18, 1952, to $ 23,500 which was the outstanding balance at date of trial. The interest rate on the loan, originally 3 per cent per annum, was subsequently increased to 4 per cent.
From the borrowed $ 19,900 Noell on May 2, 1950, transferred $ 10,064.64 to the petitioner without consideration. The balance of the proceeds of the loan was paid to the collector for application on *1039 the deficiency assessments against Noel for the taxable years 1946 through 1948.
Petitioner bought common stock with the funds given her on May 2, 1950, by Noell. During 1951, petitioner sold certain of those stocks, immediately reinvesting some of the proceeds in other stocks. The bulk of the sales proceeds not reinvested was deposited by petitioner in her own bank account.
Dividends amounting to $ 442.25 were received by the petitioner and deposited in her account during 1951 and 1952 on the stocks purchased with the funds given her by Noell.
In addition to the $ 10,064.64 given to the petitioner on May 2, 1950, Noell transferred to petitioner $ 17,579.03 as follows:
| Date | Amount | Form of transfer |
| Jan.13, 1949 | $ 500.00 | Check on personal account of Charles P. Noell. |
| Mar.18, 1949 | 5,336.94 | Endorsement by Charles P. Noell of check payable to |
| him from John H. Haley, Jr. | ||
| Jan.17, 1950 | 1,000.00 | Check on personal account of Charles P. Noell. |
| Sept. 13, 1950 | 1,000.00 | |
| Sept. 26, 1950 | 500.00 | |
| Dec.19, 1950 | 1,200.00 | Cash from Charles P. Noell. |
| Feb.28, 1951 | 148.75 | |
| Feb.28, 1951 | 500.00 | Cash on Charles P. Noell. |
| May28, 1951 | 5,000.00 | Checks ($ 3,000 and $ 2,000) on personal account of |
| Charles P. Noell. | ||
| Aug.14, 1951 | 800.00 | Cash ($ 459.00) and check ($ 341.00) from Charles |
| P. Noell. | ||
| Sept. 17, 1951 | 43.65 | Check from Charles P. Noell. |
| Nov.21, 1951 | 1,549.69 | Endorsement by Charles P. Noell of check payable to |
| him from Aetna Life Insurance Company for return of | ||
| premium. |
*136 Petitioner gave nothing of value for the $ 17,579.03 which she deposited in her bank account. That account was in the name of petitioner and only petitioner had authority to draw checks thereon.
The collector seized the balance in the account on April 11, 1952, and applied it as a payment on the transferee liability asserted herein.
On May 6, 1952, petitioner sold all the stocks she then owned. Petitioner realized a net gain of $ 907.94 on the stocks bought with the funds she got from Noell. The proceeds from the sale were paid to petitioner by bank check in the amount of $ 9,234.37. Petitioner and Noell together went to the bank and there cashed the check, the cash proceeds being turned over to Noell.
During the period from January 13, 1949, to March 12, 1952, petitioner drew checks on her account payable to Noell as follows:
| Date of | |
| withdrawal | Amount |
| Feb. 8, 1949 | $ 200 |
| Apr. 1, 1949 | 500 |
| Apr. 1, 1949 | 1,600 |
| June 25, 1951 | 1,700 |
| July 11, 1951 | 600 |
| Nov. 21, 1951 | 100 |
| Total | $ 4,700 |
*1040 There had been deposited in that account funds other than those given to petitioner by Noell including, inter alia, a deposit of $ 875 on January 30, 1952, representing*137 damages received by petitioner for a broken arm. It also included nine deposits totaling $ 442.25 from dividends on stocks, and gains realized on the sale of stock.
In addition to the checks payable to Noell, petitioner withdrew from her bank account during the period January 13, 1949, to March 12, 1952, the following:
| Number | Total | |
| of checks | Payable to -- | amount |
| drawn | ||
| 60 | Cash | $ 6,788.60 |
| 45 | Department stores | 2,882.74 |
| 50 | Utilities | 431.53 |
| 17 | Children | 555.39 |
| 97 | Miscellaneous | 3,442.53 |
| 8 | Dairy | 121.78 |
| 4 | Rent | 735.00 |
| 1 | Investment | 2,807.75 |
| 1 | Funds paid collector as transferee of assets | |
| of Charles P. Noell | 4,385.57 | |
| Grand total | 22,150.89 |
Petitioner has maintained, at least since 1949, a safety-deposit box. During that time, Noell was a deputy of petitioner and had complete access to the box except for a period when it was sealed by reason of action taken by the collector.
On April 30, 1951, Noell purchased from the First National Bank in St. Louis a cashier's check in the amount of $ 5,000 payable to petitioner. That check was subsequently endorsed by petitioner and deposited in Noell's checking account in the First National Bank in St. Louis, *138 Missouri.
Certain fees received by Noell from his son-in-law, John H. Haley, Jr., and others for referring litigation to them were turned over by Noell to his son, Charles P. Noell, Jr., who, by an arrangement with the First National Bank in Clayton, purchased for Noell certain checks issued in the name of the son. This scheme was devised by Noell after the collection agent seized his bank account in April 1952, and its sole purpose was to conceal funds from the collection agents of the Internal Revenue department. Noell has hidden cash at home solely to prevent the collection agent from seizing it.
Noell's law practice over the years was large and successful, resulting in a very substantial income. In 1942, he began to show definite signs of hardening of the arteries. At that time, he had been a diabetic for an indefinite period. Noell's physician noticed no significant changes upon examining him in 1943, 1945, and 1946. In early 1948, Noell began to develop diabetic neuropathy involving the nerves in his legs and back causing pain in the legs, backaches, and loss of pulse in both feet. There was also evidence of damage to the heart at that time. In 1948 or 1949, Noell suffered*139 a heart attack. *1041 In 1950 he was developing soft tissues because of poor blood supply. At about that time, Noell began to develop postural hypertension, a form of unusually low blood pressure while standing, sometimes resulting in his feeling faint. Noell also had a tumor of the pituitary gland.
Beginning in 1948 and as a result of some combination of his afflictions, Noell showed signs of memory defects and his judgment was impaired to some extent. His physical and mental condition has not improved since 1948 and has tended to worsen.
In 1948, Noell tried only one case and since that time has referred all cases to other lawyers, from whom he received forwarding fees from time to time. He reported net income of $ 9,686.24 for 1950, $ 28,704 for 1951, and $ 17,270 for 1952.
Under the internal revenue laws applicable to jeopardy assessments, the sum of $ 28,099.80 was assessed against petitioner as transferee on or about March 21, 1952. The Government's collection agents seized from the petitioner and applied against her account as transferee the following sums:
| Apr. 21, 1952 | $ 2,300.00 |
| Apr. 22, 1952 | 4,385.57 |
The $ 2,300 payment represents the proceeds realized*140 from the collector's sale of petitioner's 1951 Oldsmobile automobile.
The transfers by Noell to petitioner were a part of a plan formulated by Noell which had the intention and effect of hindering, delaying, and defeating the collection of his 1949 income tax.
Noell was insolvent at the time of the various transfers of money to petitioner.
OPINION.
Respondent has determined a liability in the amount of $ 28,099.80 against the petitioner as the transferee of certain assets of her husband, Charles P. Noell. It is agreed that his outstanding income tax liability for 1949 exceeded that amount and we do not understand petitioner to seriously dispute the fact that she has received more than the above stated amount from Noell as follows:
| Partial proceeds of loan on Noell's insurance | $ 10,064.64 |
| Checks and cash deposited in petitioner's bank account | 17,579.03 |
| Cashier's check | 5,000.00 |
| 1 Gains on sale of stock bought with proceeds of insurance loan | 907.94 |
| 1 Dividends paid petitioner on stocks bought with proceeds | 442.25 |
| Total | $ 33,993.86 |
*141 Petitioner contests the respondent's determination on a number of grounds contending, inter alia, that respondent failed to make a sufficient effort to collect the tax from Noell. The most cursory perusal *1042 of the record reveals that this contention is wholly without merit. Respondent made every reasonable effort to effect collection of the admitted deficiency, assigning up to 10 men at a time to the search for Noell's assets. Respondent's limited success in collecting only $ 1,740.09 reflects not inaction by the respondent's collection agents but, rather, the studied and devious maneuvers of Noell in nullifying their exhaustive efforts.
Indeed, it seems plain that even before filing his return for 1949 on March 15, 1950, disclosing liability of $ 33,627.06, without any remittance (other than the $ 2,000 remittance paid with the declaration of estimated tax), Noell had embarked on a plan to hinder, delay, and defraud the Government in the collection of the tax admittedly owing. Surely he must have known on January 16, 1950, when he filed his delinquent declaration of estimated tax for 1949 that $ 2,000 was not even a sizable fraction of the correct figure. Noell *142 elected to file a separate return despite having been informed by his accountant that it would cost him some $ 6,000 more than the tax computed on a joint return basis. As shown by our findings of fact, Noell repeatedly made unkept promises to pay, refused to disclose sources of potential income, refused to furnish requested financial statements, concealed cash, entered into fictitious banking arrangements in the name of his son, and made false statements to the collection agents regarding ownership and transfer of assets.
All in all, we are convinced that up to the time of the trial Noell's actions were consistently intended to hinder, delay, and defraud the collection agents and that the series of gratuitous transfers to petitioner was made in anticipation of execution by the collection agents. This being the case, transferee liability is established irrespective of the question of Noell's solvency. ; .
Petitioner's further contention that respondent failed to establish the insolvency of Noell therefore would be immaterial, even if true, but, in any event, *143 that argument must fail in light of our finding that Noell was insolvent.
Although the burden of proof in transferee cases is on the respondent, the burden of going forward with the evidence is shifted to the petitioner upon proof of gratuitous transfers. ;. Such transfers having been admittedly made in the instant case, a prima facie case of transferee liability was established and petitioner had the burden of showing Noell's solvency.
The only significant evidence of Noell's solvency was his own testimony as to his income in the period 1950-1953. We were not impressed with that testimony which was vague and inconclusive. In view of the thoroughness of respondent's search for Noell's assets, we *1043 think it clear that his assets did not approach the level of his liabilities. In view of the holding of the Court of Appeals for the Eighth Circuit in , that property held by the entireties in the State of Missouri may not be levied upon to satisfy a lien for*144 Federal income tax due by only one of the spouses, we do not take into consideration Noell's interest in the Fox Hill Farm property. Cf.
We have considered the medical testimony regarding Noell's physical and mental condition and observed him on the stand. We are convinced that although his memory was impaired to some extent by his multiple afflictions, he was nevertheless capable of the intentions above attributed to him.
Clearly, petitioner was initially liable as a transferee. We are of the opinion, however, that the assets retransferred to Noell by petitioner must be offset against the total originally transferred to her. . Cf. ; ; . We have found as a fact that petitioner effectively returned to Noell the $ 5,000 certified check, $ 4,700 from her checking account, and $ 9,234.37 in cash stemming from the sale of the aforementioned stocks, all of which total*145 $ 18,934.37. By setting off that amount against the $ 33,993.86 transferred to petitioner, we arrive at the figure of $ 15,059.49 as the maximum amount for which petitioner might be held liable as a transferee. 1 As stated by us in , "The return of the property to him, to the extent of the property so returned, would, in logic at least, leave his creditors, including the United States, in the same position they were in prior to the transfer by him to petitioner."
It is petitioner's further contention that except for the aforementioned assets returned to Noell, everything that she received from him was expended for living expenses which she asserts will reduce to zero whatever transferee liability may exist. We think this contention is wholly without merit. Our decision in ,*146 makes it clear that once funds are transferred in fraud of creditors, it is no defense to the transferee that part or all of those funds were subsequently expended for the living expenses of the transferor in the absence of a showing that the expenditures made had priority over the indebtedness to the Government. There being no such showing in the case at bar, our finding that the transfers from Noell to petitioner were intended to delay, hinder, and defeat the Government in the collection of Noell's taxes is dispositive of the question.
The record contains some general statements to the effect that some of the funds transferred were intended at the time of transfer for the *1044 payment of living expenses. Conceding without deciding that such an intention might preclude a finding that a particular transfer was in fraud of creditors, the evidence in the instant case is far too vague and indefinite to warrant a finding of such intent as to any of the transfers.
It follows that respondent correctly determined that the petitioner is liable as a transferee of the assets of Charles P. Noell. That liability must be reduced, however, to the extent of the assets retransferred to Noell*147 by petitioner.
Decision will be entered under Rule 50.